Correlation Between Walmart and WPP PLC

Can any of the company-specific risk be diversified away by investing in both Walmart and WPP PLC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Walmart and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Walmart and WPP PLC ADR, you can compare the effects of market volatilities on Walmart and WPP PLC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Walmart with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and WPP PLC.

Diversification Opportunities for Walmart and WPP PLC

0.87

Correlation Coefficient

Walmart  WPP PLC

Very poor diversification

The 3 months correlation between Walmart and WPP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and Walmart is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Walmart are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of Walmart i.e., Walmart and WPP PLC go up and down completely randomly.

Pair Corralation between Walmart and WPP PLC

Assuming the 90 days trading horizon Walmart is expected to generate 0.73 times more return on investment than WPP PLC. However, Walmart is 1.38 times less risky than WPP PLC. It trades about 0.14 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.03 per unit of risk. If you would invest  4,380  in Walmart on September 24, 2024 and sell it today you would earn a total of  4,607  from holding Walmart or generate 105.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Walmart  vs.  WPP PLC ADR

Walmart

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Walmart unveiled solid returns over the last few months and may actually be approaching a breakup point.

WPP PLC ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WPP PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Walmart and WPP PLC

The main advantage of trading using opposite Walmart and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart position performs unexpectedly, WPP PLC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in WPP PLC will offset losses from the drop in WPP PLC's long position.

The idea behind Walmart and WPP PLC ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.